Apple more profitable than Microsoft as netbooks plunge 40%

updated 07:25 pm EDT, Thu April 28, 2011

by MacNN Staff

Microsoft Q1 2011 sees Apple outpace it in profit

Microsoft on Thursday night suffered a symbolic loss as its results confirmed that Apple had beaten it for the first time in pure profit. Although Apple had already outgrown it in market cap last May and through revenue in October, its $5.99 billion net income was enough to outpace Microsoft's $5.23 billion. Apple's revenue lead was also noticeably wider, at $24.67 billion to Microsoft's $16.43 billion.

The disparity may have been directly attributable to Apple's effect on Microsoft's performance. Overall drops in the PC business led Microsoft's core Windows division to lose four percent of its revenue year-over-year "in line with the PC trends." It revealed that revenue from netbook Windows licenses crashed 40 percent as the iPad stole much of the mini-notebook category's market share.

Total revenue was still a record for Microsoft's first quarter, but much of the profit was carried on the back of the Business Division, which had strong success with Office. The Entertainment and Devices group also contributed a large part with runaway Kinect sales and a 60 percent bump in revenue. The Online Division handling Bing and other web efforts saw its revenue grow by 14 percent to $648 million but wasn't enough to avoid it becoming a liability, as the losses grew even larger to $726 million.

Bing managed to get 13.9 percent search share, helped both by its deal to run Yahoo search and gains mostly at non-Google rivals' expense.

Apple's win in profit is considered crucial as it has always been the toughest goal for the company to reach. While Macs, iPads, iPhones, and iPods usually cost more than a copy of Windows and made revenue relatively easy, the lower costs of developing, shipping, and selling software by itself had previously kept Microsoft ahead. The overtake reflects Microsoft's still-slipping mobile market share in spite of Windows Phone 7 and its inability to translate a nearly nine-year-old strategy for the Windows Tablet PC platform into meaningful sales. In nine months, Apple sold more iPads than every Tablet PC ever made and has been successful in luring customers over from Windows netbooks and entry-level notebooks.

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rest of 2011. It's the only way to show that Windows netbooks will continue to fall out of favor thanks to high demand of the iPad 2. It may be true that Microsoft Windows has 90% desktop market share, but Apple is making a good amount of money even with the tiny percentage it has of desktop market share. Surpassing Microsoft first in market cap and now revenue could mean big things for Apple. It may not get any respect from Wall Street but money is money and Apple is stockpiling more each quarter with plenty of growth potential ahead. I think that Microsoft Windows days of growth are over.

I remember there was a CEO from Taiwan who denied that the iPad had any effects on their netbook/notebook shipment.

First, the hard drive companies reported reduced shipment on 2.5" drives and many 'packagers' bought up the excess and started selling 'external USB 2.0 500GB/320GB drives' for the first time. Then Windows sales dropped.

I suppose he's been swimming in the river called denial after all; he may even drown in it.

will only get wider. Ballmer is totally ineffective as a CEO on top of everything else. The fact that "windows" controls MS means, in no uncertain terms, that Ballmer is no CEO. Could you imagine in your wildest dreams that kind of insubordination under Steve Jobs?

Just think of it for a moment; Wozniak said it himself: "The iPad is the computer Steve always wanted".

iOS gives Apple TOTAL CONTROL (and unmatched revenue):

Want to plug in your camera memory card, buy an adapter (patented so ONLY Apple can provide them). Want to install a new application, only place to get it from: Apple. Want to read your favorite paid journal, have to go thru the Apple store and pay 30% extra because Apple will not let a periodical's app handle payments.

If the previous were not enough, just think of how many Apple desktops sell per phone/tablet. the ratio is something like 2000:1. Phones and tablets have close to zero maintennance vs the tens of things that can go wrong on a desktop (even a Mac one). Software that installed/uninstalled incorrectly, late OS patches, hard-rives that die. All of this requires either a dedicated technician, or at least toll free line assistance - expensive stuff to keep up. A phone/tablet fails 90% of the time it will just get replaced. See the price advantage?

Right now I love Apple (desktop) hardware because I have the option of installing Windows 7 Professional on it. The hardware is well designed and Snow Leopard isn't bad either except for the way the app store is implemented.

To understand this you have to take for granted one of the most powerful defining phrases (for a character) Michael Douglas must have ever interpreted. I'm referring to the one he vocalizes in Wall Street (1987): Geed IS Good.

Say you are a certain company's stockholder. This company makes product A & B.

B turns in something in the order of a 1000 times what A does yet it's lifetime is about half to one third of product A. On top of this B's support costs are a small fraction of A's.

As the stock holder (remember GREED is Good), which product would you place all your bet's on, and of course, which one would you get rid of as soon as you could?

It already happened to the Xserve line of rackmount servers.

Seeing the direction general computing is going, I'ts not much the credit of Steve Jobs insight to have addresed it but rather the incredible stupidity of Balmer and Gates, to have missed this.

... the Microsoft Minister of Information says "This is impossible! Windows is everywhere! There must must be some mistake in the revenue and profit computations! Somebody better check the formulas on the Excel spreadsheets they're using!"

They're in the Windows + Office business. A small but highly profitable (for now) subset of the overall software business. And that's why they can't be bothered to work hard on distractions like mobile OSes. They make most of their profits from Windows + Office. They know that. They will do nothing to jeopardize that.

Microsoft has vision, but they're looking backward. To the glory days of Windows 95. Ballmer says that Windows 8 will be ported to ARM chips, so it will be better suited to mobile applications. But what about Office? Office is Microsoft's killer app on Windows. But can you imagine how hideous the Office experience would be on a small screen? And without Office, what will the killer app be for Windows 8 on an iPad clone? Angry Birds? Angry Monkey Boys?

Looking at Microsoft's recent horrendously botched attempts in mobile, botching the Windows 8 ARM transition (plus or minus a mobile Office) could be the last thing Ballmer does before he's finally un-installed.

The netbook fad hurt pee cee makers. Their low prices and razor-thin margins forced them to ship large volumes to make any profit at all. And their per-unit average profits dropped with each netbook they sold. The good news for them is that they can focus on higher-margin pee cees again.

Of course, the bad news would be iPad 2. The Acers, Dells, and HPs of the world will be forced to sell their iPad clones at or below iPad's price. Again hurting their margins, since they don't benefit from Apple's economy of scale. Apple controls the pricing of the world's supply of NAND memory, since they're the biggest purchaser. And soon Apple will do the same with touch screens and other iPad components. Everyone else will be forced to out-bid the other guy for the remaining supplies.

No way to match Apple's pricing without drastically hurting the user experience. Speaking of which, Apple's vast and robust infrastructure is simply unbeatable. It's iTunes + iTunes Store + App Store + iOS + iLife + iBooks etc. It's taken Apple 10 years to develop all that. Acer and all the others will be bringing specs to an experience fight. And they will lose.

Oh... that "beleaguered" Apple that refuses to go away, no matter what the doomsayers are praying for in the last 20 years. It's outrageous!

How a company that makes everything wrong, who's CEO suffer from a absolute lack of vision and taste, who's investing in products that are destined to become "failures", who's commercial practices contradicts every single principle and prediction, who's desktop and notebook computer sell like hot cakes while the industry as a whole is sinking with lost revenues, who's capital reservers are enough to buyout all it's competitors in the smartphone business, that can keep up with demand for those iPhones despite android phones being soooooo much better, and who's revenues lies in a bunch of dumb "fanboys" that can't think for themselves, could done so well?

(and I do say arguably), this is what was bound to happen all along, except that Jobs being ousted from Apple delayed it by a decade or so. If he'd stayed at Apple the whole time, who's to say that Apple wouldn't have just kept climbing in market share instead of sinking, and passed MS in 1997? Perhaps the Newton, if done the Steve Jobs way, would have been the tablet to end all tablets, and we'd all be waiting in line for the Newton XII right now.

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